You have the following regression model. y = β0 + β1x1 + β2x2 + β3x3 + u

You have the following regression model.

y = β₀ + β₁x₁ + β₂x₂ + β₃x₃ + u

You are sure the first four Gauss-Markov assumptions hold, but you are concerned that the errors are heteroskedastic. How would you test for hetereskedasticity? Show step by step.

Solutions

Expert Solution

1. Estimate the coefficients of the model

2. Estimate the fitted values.

3. Estimate the residuals.

3. Draw the scatter between residual VS fitted value. If the plot shows a nice random, the errors are not heteroskedastic. If the plot has a funnel-shaped or increases the width and reduce or width, reduce and increase, the errors are heteroskedastic.

Example of funnel-shaped is

orchestra answered 1 year ago

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